[inaudible conversations] >> well, they follow instructions without even getting them; right? thank you for joining us on behalf of myself, jim nussle, and the committee on the responsible federal budget. our co-chair is jim and charlie and the entire bipartisan board of our committee. i want to thank you for coming and welcome you to the committee's annual conference. i want to thank and recognize our president, maya mcguiness and her entire team and

committee for the hard work and putting together the conference and for their tireless work throughout the year. our representation as a committee in very large measure is because of maya and her strong team. she deserves a lot of credit for this conference. thank you, maya. [applause] [applause] >> as you can see, we have a tremendous group around this table and over flow audience it appears of our nation's leading budget experts. we have a terrific moderator with steve leaseman. the attendance online and for the conference reflects the tremendous rise and, of course, this issue and the challenges on the national agenda and why it's so important for us to gather and consider solutions. for 30 years now on the committee on a responsible federal budget has occupied a unique perch, bringing together policymakers to instruct the

policy process in washington. our mission is to be bipartisan, nonprofit committed to educating the public about issues that have significant fiscal policy impacts. the committee is made up of some of the nation's leading budget experts. many of the past chairman and staff director of budget committee in the house and senate, congressional budget office, the office of management and budget, the government accountability office, and even the federal reserve. our board sets the tone for bipartisanship, respect among peers, mutual policy accountability, and we hope we can inspire some of that much needed behavior to be modeled across the street on capitol hill. a participant staid to -- said to me on the way in, all of the budget geeks in one room, i'm sure the solutions will be obvious. i have to tell you the solutions tend to be obvious. that's not what really is the

challenge most likely here today. the really change maybe the challenge to make the obvious solution and make them real. it will moving from who's at fault to who is willing to lead and be responsible. so may we stipulate at the outset that republicans believe that democrats are at fault and democrats believe that republicans are at fault and both sides are probably correct. at least that's how we roll at the committee for responsible federal budget. because we believe we have accomplished good recommendations with that premise. we are quite proud of many projects led by our committee. allow me to briefly highlight a few. we have the pools on our web site for www.crfb.org. among them include u.s. budget watches. we'll be tracking the candidates positions in the upcoming

election. the committee also host the peterson-pew commissioner on budget room where we have developed solutions at the center being discussed regarding the budget and debt ceiling we have a tool box at reform.org. and our online ground breaking project, the exercise of hard choices, where participants are challenged to stabilize the debt at our debt simulator which is an online game that i can tell already many of you have tried to go on and get the high score. keep trying. we have to stabilize the debt. it's a way for you to play at home while the policymakers fool around out here. finally, the moment of truth project which we just unvailed this week. the moment of truth project is using the work the president's fiscal commission bowles-simpson to track the progress on capitol

hill policies while discussing fiscal reforms proposed. it's now my pleasure to introduce the keynote speaker. the chairman accepts very little, and it's a testament to the seriousness and respect between friends, colleagues and associates like myself that he has agreed to join us today. ladies and gentlemen, the chairman of the board of the federal reserve, ben bernanke. [applause] [applause] >> thank you, good afternoon. what an impressive group of talent that we have around the table here. i'm very pleased to speak to a group of such a distinguished record identifying critical issues related to the federal budget and working towards bipartisan solutions to the

nation's problems. today i'd like to briefly discuss to set up the meeting the fiscal challenges the nation faces, the importance of meeting those challenges and how it affects our collective economic future. i'd like to put a few thoughts on the way forward. at about 9% of the gross domestic product, the federal budget deficit has widened appreciably since the onset of the recession in december, 2007. the exceptional increase in the deficit has mostly reflected the automatic sip recall response as well as easing the aids recovery. as the economy continues to expand and stimulus policies are phased out, the budget deficit should narrow over the next few years. unfortunately, even after economic conditions have returned to normal, the nation faces a sizable structural budget gap.

both the congressional budget office and the committee for responsible federal budget project the budget deficit will be 5% of gdp in fiscal year 2015, assuming that current budget policies are extended and economy is close to full employment. of even greater concern is the longer run projections that extrapolate current policies about the future of the economy which show the structural budget gap increasing for -- increasing further over time. under the current scenario by the cbo, which assumes most policies are extended, the deficit is projected to be 6.5% -- in 2020 and almost 13% of gdp in 2030. the ratio of outstanding federal debt to gdp expected to be about 69% at the end of the fiscal

year would rise to 78% in 2020 and 140% in 2030. one reason the debt is projected to increase so quickly is that the larger the debt outstanding, the greater the budgetary cost of making the required interest payments. this dynamic is clearly unsustainable. the nations long term fiscal imbalances did not emerge over night. to a significant extent, they are the result of an aging population and fast rising health care costs both of which have been predicted for decades. the cbo projects that net federal outlays for health care entitlements which were 5% of gdp in 2010 could rise to more than 8% of gdp in 2030. even though projected fiscal imbalances associated with social security system are smaller than those for federal health programs, they too are significant. although we have been warned about such developments for many years, the difference is that today those projections are

becoming reality. a large and increasing level of government debt relative to national income risks serious economic consequences. over the longer term, rising federal debt crowds out private capitol formation and thus reduces productivity growth. to the extent that increasing -- by borrowing from aboard -- the future income would be devoted to interest payments -- on foreign -- hello. any better? good. good. hi levels of debt also impair the ability of policymakers to respond effectively to future economic shocks and other adverse events. even the prospect of unsustainable deficits has cost, including an increased possibility of a sudden fiscal

crisis. [no audio] >> hello? as we have seen in a number of countries recently, interest rates can soar quickly if investors lose confidence in the ability of a government to management it's fiscal policy. although historical experience and economic theory do not show the exact threshold at which the perceived risk associated with the u.s. public debt would increase, we can be sure that without corrective action, the fiscal trajectory is moving us ever closer to that point. perhaps the most important thing for people to understand about the federal budget is maintains the status quo is not an option. predators will not stand is rising without limits. one way or the other, sufficient adjustment to stabilize will

occur at one point. they could take place through a careful and deliberative process that weighs priorities and gives individuals and firms adequate time to adjust to changes in government programs and tax policies. or the leaded fiscal adjustments could come as a rapid and much more painful response to a looming or actual fiscal crisis in an environment of rising interest rates, collapsing confidence and slowing economy. the choice is ours to make. the primary long term goal for federal budget policy must be achieving fiscal sustainability. the straightforward way to define fiscal sustainability is a situation in which the ratio of federal debt to national income is stable or moving down over the longer term. this goal to be obtained by bringing spending, excluding interest payments roughly in line with revenues. or in other words, by approximately balancing the primary budget. given the sharp run up in debt

over the past few years, it would be responsible to plan for a period of primary budget surpluses which would serve eventually to bring the ratio of debt to national income to bring it back to prerecess levels. fiscal sustainability is a long run concept. achieving fiscal sustainability, therefore requires long run plan. one that reduces over an extended period and to the fullest extent possible is credible, practical, and enforceable. in current circumstances, an advantage of taking a longer term perspective including concrete plans for fiscal consolidation, they can avoid putting the recovery at risk. at the same time, acting now to put in place a federal plan would not only enhance economic performance in the long run, but could also yield near term

benefits and increased consumers and business confidence. while it is crucial to have a federal budget that is is sustainable, our fiscal policy should also reflect the nation's priorities by providing to support ongoing gains in living standards and striving to be fair in current and future generations. in addressing the long term fiscal challenges, we should reform the government tax policy and spending priorities to not only reduce the deficit, but also enhance the long term growth potential of our economy, for example, by increasing incentives to work and to save, by encouraging investment in the skills of our work force, by stimulating private capitol formation, by promoting research and development and by providing necessary public infrastructure. we cannot reasonably expect to grow our way out, but a more productive economy with ease the tradeoffs that we face. it's easy to call for

sustainable fiscal policies, but much harder to deliver them. the issues are not simply technical, they are also closely tied to the values and priorities as a nation. it is little wonder that the debates has been so intense and progress so difficult to achieve. recently, negotiations over our long run fiscal policies have become tied to the issue of raising the statutory limit for federal debt. i fully understand the desire to use the debt limit to force some necessary and difficult fiscal policy adjustments. but the debt limit is the wrong tool for that important job. failing to raise the debt ceiling in a timely way would be self-defeating with the objective is to chart a course towards a better fiscal situation for our nation. the current level of the debt and near term borrowing needs reflect spending and revenue choices that have already been approved by the current and previous congress and administration of both political

parties. faithing to raise the death limit would require the federal government to delay or renege. in particular, even a short suspension on payments on the principal would cause severe disruptions in financial markets in the payment system, induce rating downgrades, create fundamental doubts about the credit worthiness of the united states, and damage the special role of the dollar and treasury securities in global markets in the longer term. interest rates would likely rise, slowing the recovery, and worsening the deficit problem by increasing required interest payments on the debt for what might well be a protracted period. some have suggested that payments by the treasury can be prioritized to meet principal and thus avoiding a technical default on federal debt. however, even if that were the

case, given the current size and uneven time pattern, the treasury would soon find it necessary to prioritize among and withhold critical disbursements, such as social security and medicare payments and funds for the military. moreover, while debt-related might be met, the fact that many other government payments would be delayed would still create serious concerns about the safety of treasury securities among participates. the hippocratic oath holds we should do no harm. avoid unnecessary actions or threats that risk shaking the confidence of investors and the ability and the willingness of the u.s. government to pay it's bills. in raising this concern, i am by no means recommended delay or inaction in addressing the nation's long term fiscal challenges. quite the opposite. i urge the congress and the administration to work in good faith and quickly develop and

implement a plan. i hope though, that such a plan can be achieved in the near term without resorting to actions that would cast doubt on the credit worthiness of the united states. what would such a plan look like? career metrics are important. together with the triggers or other mechanisms to establish creditability of the plan. for example, policymakers could commit to enacting in the near term a clear and specific plan for stabilizing the ratio of debt to gdp within the next few years and subsequently setting that ratio on the downward path. indeed, such a trajectory to the ratio of debt to gdp is comparable to the one proposed on national reform. to make the framework more explicit, they could agree on a timetable for reaching

designificances about shorter term budget adjustments and longer term changes. fiscal policymakers look now enforced by well designed budget rules while simultaneously under taking additional reforms to address the long term sustainability of entitlement programs. such a framework could include a commitment by enacting legislation to reduce the structural deficit over the next several years. the task of developing and implementing sustainable fiscal policies is daunting. and it will involve many agonizing decisions and difficult tradeoffs. meeting this challenge in a timely manner is crucial for our nation. history makes clear that failure to put our fiscal house in order will erode the vitality of our economy, reduce the standard of living in the united states, and increase the risk of economic and financial instability. thank you very much. [applause]

[applause] >> okay. thank you so much. we are deeply, deeply grateful for chairman bernanke attending our conference and setting us up on such a somber -- i think we know differently. i'm quickly going to turn over moderating this event to steve who is going to run this with a such of opening remarks and then bring in everybody from our panel. i want to lend my thanks along with our chairman, chairman's el and chairman bill frenzel joining us today, we have an all star cast with opening remarks today. i think it goes to show the issue of fiscal policy and how it has risen to the top of national agenda. i think we'll probably be there for quite some time. so i'm looking forward to the discussions today.

thank you so much for all of you joining us today on to steve liesman and then congressman bill. >> thank you for pulling this together. some day you will share the magic. when you say jump, all the people around the table say how high? you do a marvelous job of bringing people together. it's a testament to you. we have -- there's an incredible amount of brain power in the room. we're going to lock the doors and not open them until we have a solution. that's the agreement that all of you have signed up for you here. plenty of coffee and cookies. nobody moves until there's a deal. and i hope you brought a change of underwear. [laughter] >> my mission here is to make as much use of this brain power as possible.

at times to be perhaps a little bit more forward with people -- with respect -- i will apologize in advance -- i want to read one quote before i turn it over to congressman ryan. forgive me if everybody has read this 100 times, i think it's so good, it's worth repeating. it's from simpson-bowles. it says the problem is real, there's no easy way out. everything must be on the table, washington must lead. congressman ryan, why don't you lead us? yeah, this one is lousy. >> the one with the red tape isn't working. you want me to do that? >> yeah, i'll take this one. >> yeah, here, take this one. >> hello, everybody. i think i know everybody around the room. nice to be back with you, maya, thanks for doing this. you are doing a great service. i'll give you what a couple of minutes? >> we're going to do three-five minute opening statements. >> opening statements, we took

over the majority this session. we took over the majority on the cusp of a debt crisis. we all know around here the size of the problem, the scope of the problem, the magnitude of the problem. we believe we had a moral obligation to put a solution on the table. that's precisely what we did in the house of representatives. to govern is to put an idea on the table and move towards solutions. that's what we did. i'll note that last year, congress didn't bother trying to pass a budget. first time since 1974 budget act, the house never even tried to pass a budget. this year it's now 775 days since the senate has passed their last budget. you can't solve a budget crisis if you don't bother to pass a budget. so in the house, we're taking our situation -- our responsibility seriously. we passed our budget by the statutory due date, april 16th.

on the net baseline, it produces spending by $6.2 trillion, $5.8 trillion off of the cbo baseline. there are four things we try to achieve. number one, economic growth. do the kinds of policies that are important to get the economy growing not unlike the kinds of things that chairman bernanke was just talking about. progrowth tax reform, where taking a page out of the fiscal commission which i was able to serve on, broaden the tax base on a revenue neutral beasties get a more internationally competitive tax code to have growth and prosperity. other things we did for progrowth and energy and other sectors. number two, we have a social safety net. we believe we have to have a safety net. the problem is our safety net is going insolve vent.

that's why we have career scholarships, job funding, that's why we reform state innovation block granting things like medicaid, food stamps. number three, it's the health care entitlements that are the leading driver of our debt in the future. you have to address that. it's unmistakable. no matter what kind of tv commercials and demagoguery, you can't escape mathematics. we put out a serious plan to try to address this problem. it's a plan that has ideas that originate from both political parties. it's a plan that saves medicare, medicare is going bankruptcy. -- bankrupt. whether you look at cbo in nine years or the throughoutees in 2014, the fact is the program is unsustainable as it is currently designed.

medicare coverage options, restore the market and pick your own plan. and you mean to test it. more support for the poor, more support for the sick and middle income than you give for wealthy people. we think that's a smart way to go. not only that, cbo tells us it brings solvency. it's very important that we put in place a plan to pay off the national debt. to the point when the outyears are getting paid off. more importantly, we put lots of budget reforms, whether it's statutory caps, total caps on all spending with whether it's debt caps like debt triggers where we keep debt as a percentage of gdp and enforce. i know i'm getting technical.

this is the kind of group. we believe in the belt suspenders approach. budget cuts, budget reforms, spending controls and economic you can't fix this if you don't have growth. the youth unemployment is 16.9%. unemployment went to 9.1%. people have been out of work for long over a year. you can't fix the countries fiscal problem if you don't get people back to work. economic growth and prosperity along with spending control is the secret to our plan. we understand that not everybody agrees with this. that's fine. we expected that. we were hoping to unite a conversation, a debate, get to the ever -- we've been losing the chance at an adult level of conversation. we are hoping to get that adult stage of conversation. the conversation that alan simpson has done a great job of contributing to. unfortunately, that's not where

we are. the partners on the other side of the rotunda has chosen to do to it. that is why the debt train is the only other train getting out of congress. this is why you have the talks revolving around the debt limit. >> thank you. i'll come back. i'll reform 16 -- 1963, last year of the baby boomer. not a single one of your plans pencils me in. >> talk to steve liesman about that. >> thank you for having me. i was born in 1964, which i always claimed as being the last year of the baby boom generation. now i've been corrected. it's wonderful to be with all of you and with congressman ryan, i want to especially say thank you

to al simpson for the incredible work and leadership that he has shown. i wish you were still in the united states senate. but he's not. i might start with congressman ryan end which is the need for a thoughtful conversation about all of this. because i'm mystified by the conversation that's going on in washington. mystified. somebody who hasn't spent their life in politics, half of my career in business and half at the local level of government. no constituent of mine at the local level would ever tolerate the conversation that we are having in washington. when it came to the government shutdown question at least by my math, the spread between the two sides represented roughly 4 cents on the $20 meal at applebees you might have for dinner. it represented $27,000 of the operating budget of city of

alamosa in my state. the mayor going to the constituent, we can't agree on $27,000, we are closing the government down. it would be laughable. the conversation around the debt ceiling, i feel is the same. what we need to have is a comprehensive discussion about how to put the fiscal house in order, and we need to do it quickly. and i think this is a test not just of our ability to do that, but an epic test of whether the institutions in washington are actually capable of working. that's what the people in my state wonder. they have a fairly simple test here. colorado is the third republican, third democratic, and a third independent. :

capitol markets as the fed chairman was discussing would be satisfied that the paper that they bought is worth what they paid for it. if i could go home to my town hall and say we met those tests, i think it would be willing to talk about all the other things we need to tune in this country like create an energy policy and for the 21st century and on and on and on but as long as this is on the table, what they are going to be saying to us is what i used to say when i was in

business and i didn't like the point on the table which is i can't hear you, i can't hear you on all this other stuff. in my humble opinion, the work that the debt and deficit commission did was an excellent start to what we ought to do and we ought to find a way for democrats and republicans in both houses to come together around something that meets the tests i could then share with the people in my state who are desperate for us to fix this problem. >> thank you for all of your work pulling this together. >> thank you, senator. we will ask the honorable alan simpson for some remarks. >> i was born in 1931. [laughter] >> i would say i was born in 1931. i hope you remember the commemoration of the december

december 2nd. [laughter] these are good things. we've been in the witness protection program and these sporadic events are inspiring to come out with here. such a thrill in january of 2010 when my old friend joe biden called and said i have a good deal for you for the commission i said who's the other co-chair he said hurston goals. i said couldn't have picked a better guy, the first call i got was from bob dole and mrs. dole saying this is one of the finest men we have ever worked with. and he is. he is a prince, a rare gem. i trust and admire him greatly. he is the numbers guy and i do the color. now you mentioned a 21% gdp

hysterically and so on who they get a powerpoint and i say i had a mortar platoon in the army and i didn't hear that question. if you could take that i would appreciate it. therefore i get the heat off me and you heard me do this before. i just say when we started this, we said we are doing this for 15 reasons. he has my money and usually they say why are the men doing this which means at this age. but what we said is we have 15 reasons, he has nine grandchildren, i have six. first we thought we were doing it for our grandchildren. the deeper we got, we found out we were doing it for our children. and now we found out we are doing it for everybody in this room. that is where this beebee is. this is a stinging bomb in the garden party. it doesn't matter what part of it they are going to use or whether my name is connected with it, i don't give a whit. but i will tell you the essence of what we did, we felt that we

have achieved an astounding success. we have effectively pissed off everybody in america and that is an important thing at 80 to be able to do that. it was good at 17 when i did it. [laughter] let me tell you, when we go around this country, we can sit in front of any audience, and for 50 minutes teaching questions get a standing ovation because we don't shoveled much at them. we sat through all this, and it took three months to establish a trust in this commission. never seen a more dysfunctional hostile environment, democrats against republicans and indy 500 worked with colburn on the defense proposals in our plan. but i tell you, when you get out and realize anywhere in the country and say here's where we

are, if you spend more than you are and you lose your buck and if you borrow 41 since you've got to be stupid. and i use the word stupid because that's what was happening. as 40 cents just a few months ago. now it's 41 cents. social security, we are not trying to balance the budget on the backs of poor senior citizens. tear up your aarp card. those people largest marketers, and i will tell you why. the social security system, if you do nothing, if we did nothing is to be at funkier 2037 what pay out 22% of its payment less. in the year that's changed now. in the year 2036 they've moved it up and you get 23% less in of a year. not bad. totally unsustainable and unconscionable and here we are

grappling with of this unbelievable thing that not 1 penny of taxes and don't touch anything against the poor and the vulnerable and less than society. and the horrible thing is if we do nothing, don't get it done, and don't think we won't get it done by the pressure of the debt limit, the. people hurt the most are the little guy, the one that everybody talks as of in this town. how about the little guy? when interest goes to 4% and inflation kicks in. it's been a fascinating thing. but i will tell you, lincoln used a word called enthralled. to look up the word thral is almost like a bunch of your mind. if the american public and congress remain enthralled to grover norquist and the aarp, you haven't got a prayer.

>> thank you, senator simpson. and i guess it does now tradition here before you speak you give the year that you were born. [laughter] in your claim -- >> but i come legend. [laughter] >> he's going to give opening remarks in just a second, but larry, moderator's profit if you're on scheduled segment, in two minutes gave us one thing you could get from a democrat and would bring you to the table to compromise and then two minutes to the senator. >> i won't take two minutes. alice rivlin and i made a crack at this. they call it the rivlin-ryan plan which is to save medicare and medicaid, the biggest drivers of debt in the future. we thought that had that included the fiscal commission plan that would have been a substantial improvement. you can't fix this problem. you just can't fix this problem if you don't deal with health care entitlements. not dealing with health care entitlement means you're not

fixing the problem. so if you fix the health care entitlement that's a huge step in the right direction that brings people on. >> i agree we need to fix the retirement and health care is a central question here having spent the last year's survive the political campaign accused of having cut $500 million in health care i know what that's like and we do need to move beyond that into a world we are having a rational conversation. i think my own view is the folks in my town hall would think well of the balance the debt and deficit commission struck a around revenue and the cuts made to the discretionary entitlements and interest savings so it was roughly 33 kuhl one as you will recall, and i would like to see the plan that reflects that. >> 3-1, you in?

>> let's see the package. >> okay. larry? >> [inaudible] [laughter] >> all right. larry, the market has to watch all this and take it in. it's been down. is some of the to do with what is going on in the debt ceiling? >> [inaudible] >> i'm in the private sector because i said in the back of the envelope calculations that a major cross element that was about to hit was underestimated by the official estimates, and i'm about to give you three that i think are underestimated right now. the first has to do with interest rates and interest rate normalization. right now on will sam farr rose at an average cost of 2.5%.

the lowest in history. eight normalized interest rate, that is the average state of the last 20 years, low inflation period was 5.7%. can we normalize rates? well, if we normalize in 2013, which i would say if we don't do it, the markets may force us to would add about $400 billion of extra interest costs. now the congress just struggled to find 37 billion in cuts in march. and here we are talking about just a normalization of rates costing ten times as much of that. now, i'm actually worried about this less than other things i'm about to discuss because i can tell you how we are going to fix it. the fed is not going to let interest rates normalize. now that as a whole host of other questions meaning we are going to be printing a lot more money than we expect, and i

think when the markets realize that is the option, we are in trouble but the fact is offical washington is underestimating the size of the problem because we are living off the interest rates. the second problem that is of the same -- by the we come over ten years if we normalize interest rates, the total additional cost is $5.4 trillion of interest rate normalization. 5.4 trillion more than the simpson commission came up with a total reduction, or frankly than the house republican came up with in their budget resolution. the second problem is we are missing estimating the economic growth. we are far too optimistic. there is a long-established economic consensus that follows in the crisis. you do not snap back the way that you step back after most economic recessions. when you tend to do is continue to grow at the trend. trend in this country is about

to .5%, and by the, in spite of the massive fiscal and monetary policy actions, 2.5% is about what we are growing. i noticed we are down to the protection for the second quarter just to-want to read and working. this is back to the historic norm. let's contrast that with where the official estimates are. the president's budget estimates a 4% growth in 2012. 4.5% growth in 2013, and 4.2% growth in 2014. they also estimate that if for every one point u.s. on that, the tenure cost, and i'm going to get it exactly right is $755 billion. excuse me, this the, yes, at each point. now, if we grow at 2.5% instead of with the administration is forecasting, we are going to miss by 1.8 points in 2012, two

points in 2013, and 1.7 in 2014. again using the administration budget, their overestimation above what i would call the academic consensus for just those years would cost more than six -- excuse me, $2 trillion over the tenure period closer to 6 trillion over ten years from the year we are talking about. this is again more than with the deficit commission estimated as the cuts are more than even though my and budget came up with another kutz. this gets back to the health care issue the reality of the affordable care act known as obamacare. last year mckinsey took out

interesting study having to do with whether or not firms would continue health care or dump their people on the federal system. here's the numbers. i want to try to get them right. we lifted them out of the report. the estimates 30% of 164 million people now on the employer plans would be dropped under the federal system. the official estimate is the number nine millions of that's about 40 million people being dumped on to the plan. the cost in the first year in 2014 is going to be $3,200 the

government has collected. $3,200 times 40 million is $125 billion nist justin the first year by the third year that rises to 160 billion. so if mckinsey is right about this, then the underscoring of obamacare is roughly equivalent to the cost of the iraq and afghanistan war combined. so here we have a situation, that's the total cost, not just the overrun. the overrun from obamacare is iraq and afghanistan. so here we are dealing with numbers that seriously underestimate the interest cost will we will pay going forward. underestimate the amount of growth there for the budget problem in the world we can't afford the entitlement we have and another entitlement that is

underestimated by the cost of the iraq and afghanistan war. so i'm afraid you asked me about the markets, you can check, i hope they stay with what i just said. but probably not. thank you. >> you know, that's actually an interesting question you way to put that at the end. the market sees what is coming but doesn't want to seem to price it in. the market knows something people are -- >> [inaudible] >> i don't think the markets are different than washington. i mean, if we thought that this was going to happen, if we really thought that this was going to be a problem, i would begin to take mr. ryan's point, you wouldn't have not passed a budget resolution in the senate for two years running or in the house last year, and when it

comes to pointing fingers about holding up the budget, and you're not a member of the senate in 2006. then senator obama gave a speech about the failure of leadership for having the vote. but all 47 democrats voted against the debt ceiling increase, so i think we have to get a little bit beyond the finger-pointing here. i think the realities are much, much more serious, and the way you do things in washington, we become an active dialogue is through the legislative process. and candidly, as an analyst i think i don't -- congressman braley and's proposal media would be an opening bid, but there has been no counterfeit so far. let me bring in the treasury now one of the biggest bombing funds in the world, maybe the biggest. how do you landed the u.s. government money knowing that larry just said you only charge 3%.

i think that you are missing a zero there. >> as you noted, we don't. [laughter] >> we shouldn't get much from the treasury yield because markets can move in a lot of different directions and we always focus on the long-term economic fundamentals and they are clear based on what larry said and what we have all been talking about. short term, europe has its own mess and so there's been an absolute measurement and relative measurement. if you look at the dollar we may be the strong guest today but that doesn't mean that we are strong, just the strong guest today and there is a lot we need to focus on. personally i'm concerned that if we look at the political process our political system response to a crisis. go back to the t.a.r.p. vote. the house voted down the first time, the dow jones industrial dropped 770 points and four days later voted for it. the concern i have is that if we

wait until their senate crisis in the treasury market they may undermine the goal standard the treasury occupied today and permanently increase the nation's borrowing cost. remember in every finance textbooks around the world, the u.s. treasury funds are more aligned times free financial the instrument. if we undermine that belief into the crisis people thought of the subpar securities were good now that belief is quaint and foolish people look back and think how quaint to think they can cut the u.s. government so it's a very dangerous game of roulette we are paying right now. >> he's got a lot of money, maybe not as much as you, i don't know, in an interview in "the wall street journal" let me turn over to michael. our cleaves says a treasury bond with a long term debt deal is worth more than a treasury bond

that is not defaulted on but without a deal. >> there seems to be a function that the u.s. were to get beyond the debt ceiling the yield would rise significantly because the concern of redefault or nist coupon payment. instead what is happening is the market's focus on the economics of it all, and if we were to move beyond that date, it would be a brisk scenario, so investors would get out of treasury, out of the risk assets, and ironically move into the treasury come and the treasury yield would be lower. the other things the markets, the other thing the market is focused on is the economic impact of a potential deal. or no deal. if there is no deal that means 9% of gdp goes away. >> and that is a double-dip scenario. even if we get any plan in place but that plan hits gdp in 2012

or 2013 that is also a scenario the treasury gets off the hook because the growth is lower that is not a good scenario and where he eluted to this is the potential for the dollar which then causes rating agency action which then causes the yield to go over and the interest rate to rise significantly. our analysis shows if the dollar was less than 50% of the global reserve, right now it's around 62 down from 72 to ten years ago that would cause rating agencies to move the aaa status down so that's something we are particularly concerned about. >> their use to be something called the bombing vigilantes' and it brings up images of guys in humvees on the trading with shotguns making sure that the government gets its debt in

order. it's been completely gone, completely absent. as the market not functioning? is the market crazy? and what is your best guess as to whether or not senator benet and congressman ron in a deal before? >> the only reason you're asking is because i live in chicago, this insidious rick. and i've seen him on the trading floor as well. vigilante's aren't really at work right now and we have these smart people talking about market reactions but what i see in the market is i think they are very current oriented and focus on the european debt situation. they started to in part on the rally we've seen today as business part because they feel more confident temporarily at the european that situation and what may be coming down there, and that occupying their mind more than what is going to be happening in august. this is a very nurturing market and it's sort of ironic that we make longer-term bets on 30 years based on the near-term

movements in the economy and the economy around the world, but my sense what is going on the market today is i don't think they believe it, i think if they were listening to the market it didn't move, so you've got to talk a little louder. but on the other side of it, i think it is a near-term focus and that when you see things like the reaction with the bond going below 3% as we saw the safety take place as the situation worsened i think that was one of the ways we described it but i think that is not the market functioning efficiently and in fact, as the university chicago and university michigan for the economics and balance economist, my view is markets over time generally get to the efficiency but the oscillate around a lot and this is one of the times they are also leading around it. >> john burbank do you think the market is beyond this kind of

factored in the there's a deal and it's okay and we are going to get beyond this and the next question is a long-term deficit? >> there are so many variables it seems like a long time away if you are in the market every day but we should have a european be told by them and understand the rate we're growing the u.s.. i think it slow-growth deflationary outlook and its ending. the markets are far more to what bernanke is doing and is likely to do than anything else because investing in inflation is the opposite in the deflationary. you have to turn your portfolio upside down and do the opposite. so, i think that the investors and business people don't have clarity and there's so many variables. the question is who's going to fix this, is it congress or bernanke or the congress? what's going to happen first?

the question is what the inflation or deflation? a lot of people comparing investing to playing poker and i say it's like we're watching the table with the world series poker because i don't know how to invest without watching what the fed does and congress does and beijing. the biggest problems who said the prices that's the problem -- [inaudible] the variable we need to understand. the biggest thing is many investors assume se3 is around the corner and if it's not the prices are going to fall ten, 15, 20%, and then the market can start speculating on qe3. >> or reduce stumbling with the microphone or --

>> [inaudible] >> you're pessimistic on the outlook. you don't think we figured out -- >> i agree with of that, but the problem of the market is people assume liquidity and the near-term, so if he's in the market buying treasury and the tenure goes up to 4%, right, but then the growth stars a faltering and here it goes down to 3% this is the second time americans have had to understand and deal with quantities of easing of any kind, so they are not very good at this. the first time they miss the fact the fed was going to stop buying mortgages which is a lot like buying treasury. so people don't really know how to bet with these things and there's different variables it's

down the list right now. >> we are happy to have the director of fiscal affairs of the national monetary. [inaudible] described as well as the currency that lost the contest for the currency. >> would you put the u.s. fiscal such a region in the context, why do people in times of crisis for example in europe go scurrying for the safety of a currency would not look like larry lindsey described earlier? >> part of the huge credibility the united states has over the last decade i think which implies they do believe it will take place as part of the course so it's to not expect the fiscal adjustment. the second reason is monitoring

conditions in the united states remains relaxed at the moment and it is hailed by the fact. in terms of stock it will d.c. further but it's there. this third reason is we have seen in the recent years many examples of markets reacting late to development in the fundamentals. gist a little more than one year ago in march, 2010 the distress over the greek debt were 300 british points. now they are 1700 basis points. markets do react late but when they react they are sharp. >> what about the context? when you put the fiscal situation up against i believe

is a an official who said point blank he doesn't understand given the u.s. fiscal crisis why in the world of the u.s. is not the focus of the fiscal concern in the world. >> here is a problem in europe to the way the europeans are managing the crisis in europe and some european countries. there is a cacophony that is a major problem and from that point of view, you may have different views in the united states but they manage the fiscal accounts and this is not happening. if we look at the fiscal numbers, the fiscal deficit in the united states is much larger than in the public debt if we cannot just look of the debt but the general government debt which includes the state's and local governments we are talking

about this year the debt to gdp ratio 100% of gdp, total gdp which is much larger but there you see the government with respect to the way the fiscal policy is managing europe. >> let me just say if people want to comment, just raise your name tag and you will be called upon. we will continue the sort of market oriented section with steve ratner and then we are going to move to the political. steve, i want you to china in. you have been on both sides here. what is your outlook? you're optimistic, i guess your former boss thinks there's got to be a deal. >> i think there's going to be a deal because there has to be a deal. i don't believe in the industrial and bernanke said

everybody can see this as a good thing or as a positive part of resolving our fiscal crisis to default on our debt or get in the price we are cutting everything else we don't default on our debt which in the corporate world would be the default but the government operates by its own rules. and so, - what you see going on the market is the previous speaker said is a mix of the view that slow growth and is a bigger problem in some ways than the lack of a budget deal as well as the refusal to believe that the government would do such a thing and we do have as i think everybody knows in this room and many better than i some precedent for going down this road in the 90's where we had a similar kind of stalemate and threats of a default or not freezing the budget ceiling and when the market didn't crater, it didn't fall out of bed it started to move away, and then the government came to its

senses and raised the ceiling .. .. >> one the great investors in the country. i said what are you doing? he said i'm buying gold. i said why? he said because i have no confidence in your ability to fix this problem. then i saw a month ago and we

talked about the debt ceiling. he said it's not within the realm of my comprehension that you could possibly fail to lift the debt ceiling. here's a guy cynical enough to do the work. but not cynical enough to assume we might actually make a mistake here. which i think suggests to me the markets may not comprehend the level of dysfunction that's going on in this place. which is why mike crapo should be congratulated in the being in the game of five or six of four or whatever it is. which is why we need to follow their leadership. >> do we wait now or wait for senator warner? >> we talked about the debt ceiling. okay. let's begin with norm. >> look, i think there's a deal to be had. one part of it could be taking

ryan's medicare plan and maybe adding in medicare itself as an option. if the markets are going to work better, let's have another option which is medicare. let it compete. i think if you put that together with some sort of tax deal that's in the range of the simpson-bowles commission, you could do it. but i have to tell you i'm not very optimistic. i think what's happening in the markets is just what steve had said. when i look at matt toomey and others, so what if it goes down. it's going to mean much. others say we're in the middle of the revolution. you got to spill some blood. then i hear john boehner and mitch mcconnell say taxes are completely off of the table on the deal. then i hear others say this is no deadline.

typical end-game negotiations like with the cr. you know the clock strikes at midnight, you better strike a deal. it might be august 2, it might not be, it leaves me very, very nervous that we might have to go through at least one iteration where we do hit something that the markets don't believe could possibly happen because it can happen before we come around to some kind of a deal. even there it's pretty dicey. >> i don't expect anything nearly as important as norm does. i think we will not default on the end, even temporarily. but the only way i see around that is not a debate over specific government programs so much or even specific taxes, but i'm looking for some sort of formula approach. some sort of automatic mechanism like graham rudman that

gradually cuts spending automatically. and gets us over this particular bump. the danger of that, of course, is that like graham rudman, is might well be too severe. indument -- and ultimately, the congress doesn't go through with it. in that case, we're left just where we are right now. >> could it be as simple as what we talked about here with senator bennett and congressman ryan? could they simply agree on a frank framework 3-1 or 2 1/2-1. that would be enough to get in the debt ceiling range? >> i think that and taxes maybe the sort of thing that will happen. weather one will occur, that's the tax increase. i'm hot sure. some sort of automatic formula that sets targets for spending that are hopefully not so severe that they are at least believable. and then after that, at some

future date -- >> dick roberts do you want to weigh in? just push the button. >> it's hard for me to believe that there will not be a deal to avoid the debt ceiling issue and in my judgment sooner that happens, the faster we'll get on to the more serious of problem of what the long term budget deficit is going to be. so i would say that i'm no expert at the bond markets, but it's hard for me to believe in the world that i live in that the political system will ever let august 2nd pass for the debt ceiling not raised. >> let's go to chairman -- when you look at the whole thing, how did it affect you and your whole company? >> well, let me say first i

think there is a -- last a calendar point here. that we are not recognizing. pardon my cynicism. but august 2nd is when the congress goes on vacation. and i cannot imagine that the congress is going to go on vacation and leave this problem unresolved. so the second variable that we're not talking about is we're going to resolve this problem for how long? for a year? for two years? for two months? are we going to kick the can down the road? small increments while we keep debating this thing? what will that do to the markets? so to answer your question, i think many people have under

estimated the power of uncertainty. uncertainty of fiscal plans, uncertainty of tax plans, it freezes businesses. we can't make judgments about the future, we can't calculate returns, there's a whole lot that we can't do because we're just kicking this thing around. and i have to -- we're all disappointed in the political process, we're all disappointed to some extent in the media process. because i don't think that the media is demanding an adult conversation as it should be. but the sector i'm the most disappointed in is the business sector. i don't -- i do not know why business leaders from all

sectors, large businesses, medium sized, are not demanding that we solve this problem. i don't understand it. and i'm deeply disappointed in my own sector. >> i join you in that. matt miller, we're going to make a turn to the political section of the afternoon. one the big criticisms last night in the republican presidential debate was the lack of relationship from president obama on economic issues and specifically on the issue of the deficit. has president obama led and whether is that leadership? >> i guess the short answer is, no. and -- but a couple of thoughts linking what's gone before to what you have asked. first the fight over the debt ceiling is not a fight about whether we're going to occur more debt. the republicans are all on record for the ryan budget, expect for three or four of them. the ryan budget in a way that hasn't been widely reported adds to the debt.

it doesn't balance the budget. it's only better than obama's framework by comparison, because the obama's framework adds $7 trillion or so in the next ten years. republicans are on record in the massive increases in debt. not a partisan, just looking at ryan's numbers. and if -- as a political matter, i'm not sure why the white house and the democrats don't say let's just raise the debt ceils by the amount of debt it could take to accommodate. it's not about the debt. it's about the debt ceiling. with that reflects is a political matter is the lust for a forcing device in washington at a time of divided government. and the almost desperate extent to which the frustration over an ability to drive something to happen is going to push the political system, including right to the edge of what could be unknowable market risking if we get close to the end. i guess my worry -- i mean on

obama, there's no question that each side has things that they are playing total games with. it gets back to alan simpson's remarks about grover norquist and aarp. we have to slow the growth of medicare and social security. the democrats don't want to talk about that by and large. we have to have taxes rise as a share of gdp when we double the number on social security and medicare. something that paul ryan or the republicans don't want to acknowledge. that will include higher taxes on people under $250,000 a year as we double the number of seniors in this country. something that the president and the white house won't acknowledge. so we are caught in the dualing charades with obviously the ability to make a solution, you know, stuck through all of this. >> thank you. >> sure. >> y'all think it will be

increased, i think it will be temporarily or sometime and then they'll have a conversation about dealing with the real problem that we are all talking about here. but let me tell you about a little scenario on december 24th, 2009. and we were in a situation where we were asked to increase the debt limit. and the pressure on all republicans was to vote no. they have the 60 votes and their going to have to do it. i happen to know that evan bayh under no circumstances would have voted to increase the debt. and i was asked to stick with the team. and i said my conscious won't let me do that. we're going to go home and increase the debt ceiling. do you understand the impact

that's going to have on the international marketplace? we got it done. don't be so sure that you don't get to this point and you got some people who are very stubborn and basically say stick it. >> if you want wait one second. i want to do a quick poll. how many people think there will be an increase in the debt ceiling before august 2nd? 20. how many know? 20 as well? just 40. 20-7. just the second part of this -- >> august 9th.

i'm in neither camp. >> why august 9th? >> i think when they go to the brink, they will go slightly over it. >> oh, so it wasn't framed correctly. mymy -- [laughter] >> that's what happens. when i get in trouble, i blame maya right away. >> we sell utah. [laughter] >> i thought it was new jersey. it's old the old joke. >> we get one for utah. will such a deal, whatever say it happens, get us through the 2012 elections? yes or no? yes first. no? one person. larry. yes. this is yes the deal will get us through the 2012 elections. two. 3, 4, -- >> politically or financially? >> okay. carol is the former chairman for the committee for reasonable federal budget. >> i think that there are --

first off, i want to repeat something else said years and years and years ago. this is not economically a difficult problem. it's a politically difficult problem. and when you ask yourself why the europeans would fly to dollars, for instance, when they look at the relative ease of the decisions that we would have to make to solve our problems, i think they find it inconceivable we won't find a way to make the decisions. if you compare the kinds of decisions that we would have to make in the united states to the kinds of things they are having to do in greece, for instance. it's laughable. it is -- how hard is it to decide that i should have to pay more for my own medicare or that i might get less in social security next year given the

fact that i'm on the board of the health care company, my husband -- my late husband, god bless him, was the vice president of a fortune 500 companies. i have health care coming out the ears, and the american taxpayers are still going to pay people who work for a living and live on what they earn are going to pay higher taxes to give me more medicare coverage. i mean how hard is it to make that decision? i think that's one piece you needed to look at. i think there's another piece that you need to look at that i only realized when i moved out of this town seven years ago. there are a majority of people in this country who really don't think congress should raise the debt limit. for members of congress to take that vote, they are going to have some 'splaining to do back home. given the fact that government

is spending far beyond anything we've ever done historically and the deficit and debt are growing expotentially i am very sympathetic to the members of congress who feel like they have to have some red meat to take home to the constituents to explain why they are behaving the way they are behaving. on the one hand, i'm not surprised the rest of the world says of course they will reach agreement. the kinds of decisions they are talking about are trivial compared to some of the things the rest of us face. on the other hand, the politics of it are extremely difficult because people, god bless you in the media, have not done a very good job of either explaining to people the seriousness of the issue, explaining the kinds of choices that actually can be made to solve the problem, and the necessity to make those choices sooner rather than later.

>> thank you. we are going to get to the folks over there in just a minute. but what we wanted to do first, we're going to get the senators a chance to speak here. we started with the republican in the last round. we'll start with the democrat in this round. senator warner, did you make a deal this afternoon? tomorrow? when? >> sooner than later i sure as heck hope. let my first of all thank maya and her great help and mike crapo and some of the others. i just missed -- came into the last couple of comments. the comment about where the is business community? right on. talk about what will put an absolute stop to any recovery. interest rate spike? we care about the deficit. every point the interest rates go up above cbo, above cbo estimates we're at $1.3 trillion to the debt over the next ten

years. i mean it's -- this is -- this is decision time. and so my colleagues know i've gotten a little obsessed about this. but we need a few more folks obsessed about it. when we have used our bullets, do we really have monetary policy left? is there any appetite for further fiscal stimulus? best job created we could do was get part of the $2.6 -- 2.5 trillion, pick your number off of the country? that's expotentially a larger job creator. your point, it's down right un-american that the brits have bit off the problem in a much more aggressive way than we have. and i, you know, frankly think i'm new to washington, but, you know, my old job we had to balance budget. as a business guy, we had to balance budgets.

you know, i fundamentally believe there's been a lot of -- a number of us in good faith trying to take on the kind of almost religious issues about revenues or entitlement or recognized you can't do it on one side of the balance sheet without looking at both. we got roughly a four and a half chance. and i said last week to the economics club, we have roughly a $4 hundredth -- $4.5 trillion reduction to the deficit. it isn't perfect. but when the alternative and the notion of the alternative being a viable option, this is one the more stunning things i've had to deal with. members of both parties saying maybe it wouldn't be that bad.

i don't know what economic bible they look at what the united states defaults somehow that could be a good proposition. right now the market is price. the chances of our default is higher than the chance of mexico or the philippines or panama, they are better credit risks than the united states government? i mean this -- everything else that we talk about in washington pails in comparison to this issue. the ability to have a growth agenda, the ability to really create jobs and get the whole slew of other things done. until we can get our path at least path of getting the balance sheet in order, it all becomes noise. and not to mention, the -- we've got more runway than any other country as the reserve currency in the worlds

we have not made a -- that's going to all play out. it is going to -- very strong -- going to have to ultimately come forward with a very strong plan. i think that it's very important to understand the distinction. i got here and don't know the rest. in the discussion about the debt ceiling and when you held your poll, i didn't hear a lot of

confidence and i think i agree with the lack of confidence in the fact that there's likely to be a monumental, fundamental change in america's fiscal policy that will put us back on the right course and all go on vacation and feel good about it over the debt ceiling. i didn't even answer your poll because i didn't know how to explain when i think that deal will come together. it will not be pretty when it happens. when it's over, we will still have the debt crisis in america. we will still need to be putting together a major paradigm shift in america along the lines that mark warner has just talked about to help us get back on to the right path. that is what the gang of six is dealing with. we're dealing with a complete change in america's fiscal paradigm. when we started it out, and i see a number of the other members of the commission here today.

we spent a year looking at every aspect. some of the basic agreements that we made then, which the gang of six is carrying forward is first that everything -- everything has to be on the table. and that we in america need to develop a comprehensive approach. and in looking at the broad categories of the approaches that we took, we looked at everything. everything in our discretionary spending, including defense spending was on the table and in the plan. entitlement reform was in the plan. not as strongly as i'd like it, but it was in the plan. revenue was in the plan. i'll come back to that in just a minute. social security was in the plan. and enforcement in the plan. one of you earlier in your comments pointed out that maybe a formula approach would be better with some teeth in it. that's also in our discussion. because we recognize the politics. when we are done, we are going to be able -- if the gang of six

approach is able to be brought forward, and i believe it will at some point, we are going to be able to put together a comprehensive, paradigm shift in america's fiscal policy for people to consider and i believe that although you could do it in many different ways, what we will do is come forward with an approach that can have a reasonable shot at getting 60 votes in the senate. and that's what we need to be building on in america. and just quickly to go back to the revenue side, mark mentioned the huge battle grounds and there are many, social security, entitlement reform, and revenue, on the revenue side, the battles still rage. but fortunately early on in our discussions in the fiscal commission, the point was made that if you look at america's internal revenue code, our tax system, if you tried to make one that was more unfair, more

complex, more expensive to comply with and more anti-competitive to american business posture in the world, you'd be hard pressed. and what we need to be looking at on the revenue side is reforming our tax policy in a way that as the fiscal commission did ultimately reduces tax rates, broadens the base, eliminates the complexity and compliance, and makes us more competitive and generating a dynamic opportunity in america to grow the economy in way that is will give us the ability to deal with the revenue needs that our government needs to have in dealing with our debt crisis. until we can get out of the old traditional ways of fighting over taxes, whether to raise the tax rates or lower the tax rates, and get into a discussion about reforming our tax code, in terms of the revenue piece of this equation, we are simply going to be going back to the

old stale problems that helped us get into the mess that we are in. the same kind of discussion can be held with regard to entitlement reform, the same kind of discussion with respect to social security reform, and so forth. but i'll just conclude by saying what the gang of six is about is about saying that we are ready to put aside the partisan differences that we have. and we are ready as republicans and democrats like i said, we don't have the deal yet. when kent conrad cast his vote for it in the fiscal plan, he said it better than anything, the only thing worse than voting for the this plan is voting against it. means that there was things in this that were absolutely unacceptable to every one of us elected officials on the panels. yet he did it. i did it. :

it's been a really remarkable process the six of us hanging for hours and hours on end, and i want to particularly thank mike crapo and saxby chambliss and tom coburn most stuck in and took a sabbatical, but i think we have to guard against and i

feel trying to get this plan out sooner rather than later is that we have seen some folks on the side who tried to draw the white lines, and if you cross the line in any way even on the tax expenditures that somehow violates the pledges and codes and what have you come and that successful formula political standpoint says we ought to do the same with those same bright lines around entitlement programs. and the more we get into that kind of conundrum, the of devotee for folks to meet the ground will diminish so my thanks has taken a whole lot of zeros on this. the need to be supportive for their efforts and get more of a voice. those of you that care about this we need to be talking to a lot of our friends in the congress and both parties to say

now is the time to step up if there was ever a chance to kind of check the partisan hat, it's now because this is as dramatic a test this country will face as anything i've seen the last 15, for news,, if we don't ever act together on this, them virtually everything is at risk. >> [inaudible] >> senator crapo, forgive me if i sound like a bookie but is 33 colin a workable formula, 3-cd parts spending cuts to one part revenue enhancement? >> here's the microphone. >> yeah. first all it is the formula the fiscal commission came up with coming and you use the right word revenue. if you look with the fiscal commission did it came up with what we called 80 option plan.

that is every single solitary tax deduction credit and exemption and the toad was eliminated in the proposal. and the vast majority, by the way, that is $1.1 trillion a year, not a decade, a year of revenue that the government doesn't collect. and of that $1.1 trillion, -- >> 1.1. >> yeah, 1.1 trillion of the commission allocated everything but about $700 billion of its to the rate reduction, and that is the basic model. now, as mark mentioned, even 1 dollar not going to the rate reduction going to the debt retirement has been argued by many and i can see the argument that it's basically using tax revenue to support spending. and i actually believe that the right line is to go dollar for dollar, and that's the way that i think we ought to do our tax

reform. but the debate that the commission focused on was virtually all the way there. it was everything out of $11 trillion over ten years, it was less than -- it was over $10 trillion in the rate reduction. so the point is we can't in this debate we always get thrown into which the news man wants to bring up, this debate over have you got a tiny piece of the slice in there that helps retire the debt instead of it going to the reduction i think it ignores the fact that the basic part, the core part of the reform is getting their rates down, and getting america more competitive and like i said i would prefer to do it all the way and then let the dynamic of girls of the economy put the revenue back in. but there's debate over that and that is a debate we may have to have a vote on in the larger group of the senate.

>> i want to bring in some of the of releases. you've been very patient. >> it just occurred to me listening to this maybe it isn't so difficult because almost everything seems to have been repeating ourselves but maybe it doesn't hurt sometimes to repeat it. i'd just want to make a couple points. first there's a preliminary one a month to agree with senator warner that it is quite possible, quite likely that we could limp along with this through the 2010 election but why do that, and i say not necessarily from a policy standpoint but from eight political standpoint because if we lived along through the 2012 the economy is going to be limping along and that won't be healthy for politicians running out there and the american people will figure out the relationship, they've already figured out the relationship between this and ask the fiscal problem we are facing and the debt and the politics of the economy. so why do it?

there's no point in doing it. i want to make three quick points. first there's the possibility of making the deal and it has to include tax -- tax revenues as well as spending. i don't know the three period one is the exact right ratio but it does have to include revenues, they have to get off that and some have to get off of bashing the entitlements every time we talk about entitlements. we have to put all this on the table. it doesn't necessarily have to include rate increases. the commission quite well pointed out tax spending, and we know what tax spending is all about, tax expenditures. this got all of system that we have developed over the decades of all the different deductions we can have we can eliminate or cap at least some of those, put some of this stuff back on the table. and that would allow us to have more rates that would allow greater investment and greater economic growth.

second point is it does definitely have to include all the entitlements. now, paul ryan's budget talks about the health entitlement. he's absolutely right that is the key part of this and by far the biggest underwriter. maybe my biases because i spent my last ten years in congress working on social security reform, but i think social security reform is doable and i think that it's also got to be included in this so all the entitlement programs have to be in there and the third thing is that it's got to include some kind of a forcing mechanism and it's going to work if you don't have a forking a mechanism we saw that as it ran away. that worked pretty well but once it went away so you have to have some kind of a forcing mechanism in all of this and that is the conclusion of all of that would be this isn't really a technical thing. it's about the political will. do we have the political will to do it? the american people are coming more and more to see that it is about that and the demand is the sort of politicians and quicker

the politicians recognize would step up to the plate on it. then the better off we are going to be. >> the former acting director of the congressional budget office. >> i think that it's worthwhile looking at the history of the debt limit increase is and apply them to the current context. and in that look at the history particularly what has been happening in the 90's and the 80's i think that there's only two days that really matter in the next couple of months and i don't think that either of them on august 2nd. the first date is tomorrow, june 15th. the reason why it's tomorrow is there are four destin dates when the estimates are made. through september 15th and january 15th. tomorrow is june 15th estimated tax payments are due. when you were looking at it from the treasury point of view from the omb or cbo those are the most difficult times to predict on a daily or a monthly basis. i don't think that it's gotten

any easier than from when i was doing it the past couple of years in fact i think it's gotten hard. so for anybody to say we are going to hit the debt limit on a specific date let august 2nd without knowing what we are going to get to mauro i think it's just not feasible, just can't make that estimate. the second report and date is and again august 2nd, i think it's the date when congress adjourns and i think it is a couple of days after august 2nd right now. it's not on august 2nd. the reason being as was mentioned before, with the congress adjourned without passing a debt limit particularly if things like going on right now to get even better and closer. there's one other aspect i want to make. let's say everything works out beyond the expectations of a variety else in this table and we actually come to an agreement, and that agreement would involve not only entitlement cuts, but

enforcement revenue and other things. >> in the next six weeks there isn't the time to technically draft the legislation, to get through the congress, vote and have it signed by congress. i see that because again, if you look at sometime in early august when the congress adjourns, and if they are close to a deal, that means there's almost certainly going to be some kind of a short-term extension, short-term been entel september maybe even october for the deal to work out. >> do you think the was helpful? we had a date, august 2nd. now you tell me it may not be oversight? let's not tell congress the truth on this. >> i was trying to help the business community. >> from june 15th to marlo because the treasury it could be july 27th, it could be -- tomorrow or actively it takes a

while so it's a chilly july 15th as opposed to june 15th but after you get an idea of amounts coming from to marco would have a big impact on what the specific date is when the treasury runs out. ischemic >> why don't we call on somebody that speaks enormous sense and did so in today's "new york times," david brooks, who wrote a pox on both their houses column this morning are doing for something of a hamilton party that would incorporate the best of both worlds it strikes me when i look at these debates and think about this economically. it's not republican democrats, but the new politics has got to be young versus old, doesn't it? >> i would like to serve a generational war as much as the next guy. i kind of look at these sociologically, so i think in this room we have a bit of a

focusing illusion problem which is that everybody in this room cares about this issue and i think the senators are heroes but the fact is most americans don't care about this issue and i will say the majority of congress don't care about this issue they see it as more or less like a global warming and people that think it's a really big problem and i guess they are probably right but i sure as hell and not going to sacrifice for it. so i see this as a sociological problem as much as anything else. you have a lot of people who think washington is irresponsible, they don't trust it, there's no social trust, the cedar lives dissolving around them and medicare and programs like that are one of the anchors they can hold onto and they see 9% unemployment and think some people in washington want to cut spending and raise taxes. are you crazy? the huge sociological problem, the unformed nature or the hostile nature of the american public is i think the core

problem. i don't think this is an elite problem, this is a national sociological and democratic problem so what has been interesting covering this debate is how different politicians interpret the national mood in different ways it's been particularly interesting for example as the different sorts of republicans to get the debt ceiling debate. some people i think mr. mcconnell was one of them sees this as a huge political winner, the only moment of a huge leverage over the president and a look at the polls. other republicans imagine the president announcing he's going to be lee pell grants and social security payments and say this is a huge political loser and i don't think the republicans of closure on that or democrats really understand what the political consequences should be. so to me this is and the essential problem of too much democracy and that is the fundamental barrier as different politicians who don't care about the issue are trying to measure the public reaction among people who don't care about this either.

>> i used to be governor, you know, what you said about the government, you knew when those receipts came? >> i would urge, david, as i would take some issue. no one has yet made that call to arms the american people everybody has to have some skin in the game. most of this has been normal, putting one group against another, and i the phrase churchill americans to the right thing after they tried everything else. we've tried about everything else now, and i think i respectfully disagree the american people feel this is not hard math. we are spending an all-time high. revenues are at a 70 year low and a lot of folks getting older, people in their got no as mike said that some of the fundamental paradigm have to shift, and we have gotten more running room than virtually any other country. we are not going to fix this

overnight. but the confidence builder that would be put in place if we had a real plan and one of the things we worked very hard on and might in particular is making sure if we have a plan there was mechanisms. and i'm just very anxious to get it out and take the air grows and shots so we've got to give something for somebody to before. so there hasn't been a bipartisan effort that everybody can rally and the four. >> if you came up with something it would have a galvanizing effect, but there's not. >> trying to get to the people who don't speak to extremely hard political decisions. there would be the political way for the nominee and then i think democratic sen spending tax cut.

this would be a huge first step and it has to do with the national move to the estimate we have a microphone shortage. >> a kind of agree with what mr. brooks said, but here is the question, if you have my job, congress is an institution that has some -- >> it's not making them come and one of the reasons it is not making them is that especially in the house, every issue is seen as an ideological battle to be one rather than a practical problem would be solved. the budget is a resolvable problem and people seeking us through could come up with something and the fiscal

commission did in the gang of six doing a tremendous job as well but there is no room in the house as we are now operating to actually have the trust is required to come to some common ground decisions and what we see on the political process has the capacity to do that is played out with health care. the laws passed by a partisan vote in the house in the dinner was repealed buy basically a totally partisan vote in the house when there wasn't the election, and the benefit of having some bipartisan body and is it gives some concrete signal to the american people and we probably got it more right than wrong and it gives a little bit confidence what we got wrong we would be willing to make a right. but that is not at all where we are at. now i have an enormous amount of apprehension about the debt ceiling.

i think ultimately it will be increased because it has to be increased but there is an immense amount of damage we can do if we still allow our way reluctant into being what we should have done. this is not the same situation as a midnight resolution of keeping the lights on in government. at a certain point the markets due turn and there is debate about it we do have this irony of the interest rate but if it does turn it will be -- but the loss of the institutional -- that the erosion of the institutional confidence in the congress of the united states is an enormous threat to the strength of the country. and the vet who is going to make the first move is it going to be converse and us doing our jobs and the only way that we can effectively do it is by doing it together or are we going to wait for folks who are hanging on by their fingernails with the real

challenges in the economy stubbing the wage growth of very high unemployment service is a very serious problem and i do think that what the bill in the simpson commission is doing and the gang of six is doing where there is a recognition of how we do we is as important as what we do for having any potential for the long-term resolution is quite vital. >> the list is getting quite long as if we can get our comments to the two or three minute range would be fantastic. >> a couple points. the first point we should have learned in the last couple of years looking to the market as a predictor of defense is a less than perfect measure if for no other reason that the strategy they are employing are so complicated that you really can't tell other than the net

effect of the investors are thinking. and the second point is that we have to distinguish looking at a failure to extend the debt limit and an actual or technical default from the underlying economics and politics. what we are talking about is a political default. there is no question on anyone's mind that the united states can afford to pay its bills no matter what the rhetoric we still have one of the smallest government as a percentage of gdp in the world, so the rest of the world isn't looking and saying the u.s. is up to the limit on what they can afford. greece made it with the united states is nowhere close to what we could afford to pay. so it isn't the question can we afford to pay the debt, this is a question of do we choose to pay the debt and politically choose. i think the analysis that david brooks gave is exactly right. at any given point in time the 20% of the public cares about

fiscal issues. sometimes it can be higher come sometimes lower. in 1997, the last time we had a consensus around balancing the budget, it was a little higher because the guy from texas that have run for president galvanized a lot of people and these people were all up for grabs and both parties were trying to figure out how to appeal the policy would give them a shot at them. right now the politics as i read them are pushing each side further and further to the base which means it is going to be very difficult to manage to work our way through this. indeed because of the rhetoric out there there are members coming home saying i will never move this way and trying to get a member as cynical as you may be but the members of congress and promise he's not going to do something to turnaround months

later a matter how virtuous the act is it's difficult so the leadership in congress is really putting themselves into a corner, and i think it's a corner that may not appreciate all the nuances. it is entirely profitable, entirely possible that republicans will be little to force an action or attempt to force action around a date and it turns out that the democrats say okay. and if the republicans have gotten prominent enough around the use of the debt limit as a tool, they will get all the credit from what ever flows from that. when democrats can sit on their hands and say they did it, they said they were going to do it and they did it. trying to manage 535 people on a single path to a given date to a given result life is irresponsible, and no matter what your goal is, so that's why i voted that it was unlikely that there would be an agreement

before august 2nd. and it is entirely possible we could have a political default. there's two people in this room i would like to mention who in the context of which i first met them. mr. ravitch met after new york city had $6 billion coming due, and politically chose not to take the steps necessary. and new york city had a default. i met george voinovich after he was elected mayor. he was elected mayor and the biggest issue in the campaign was on a politically determined default on the debt of the city of cleveland. each of these cities took over a decade and some might argue two decades to return to the market in any semblance of what they were before because the market saw that this wasn't the city of cleveland couldn't pay the $17 million new york city had the wealth to balance its budget it did not have the political

will, and once the lack of political will is shown the markets of seven a week and if they go my god there's politics in their and react in extreme ways and you spend your time no, no, we can afford it, we had a couple of glitches in a couple days. will never happen again but you've now moved politics up as the most salient factor when most it is not. so my prescription for success in the long term success as senator warner was talking about is someone is going to have to figure out how to mobilize enough people in the population to care about this that the competitors on the democratic side and republican side are competing for them and that will make a difference in the real elections. other than that, it is much safer and easier to avoid the problem and hope that it will go away. but if it becomes political salient, if there are 25% of the population who say i am actually going to vote based on what people did hear, then i think we

are almost on the path to having a long-term solution. >> steve? >> i would like to respond to that because i don't agree with frank. a big disagreement. i was told we ought to borrow the money to pay back the miss spent on this and i've said we don't borrow money. so what do the voters of the city of cleveland at the business community at the complete operations improvement taskforce said we needed more money to get the job done, ask the people of the city to raise their taxes that we wouldn't borrow the money, we would pay it off year after year after year like my grandfather used to pay his real-estate taxes, and that's at 87 we burned the mortgages, and the fact is that there is an audience out there

today in this country, and i don't agree with you, david. i go to meeting after meeting and i ask the questions, i think you heard this, how many of you believe in in this room that your standard of living is better than your parents? almost every single hand goes up. in a place of 800 people. i ask the next question, how many of you believe that your kids and you're grandchildren's standard of living is going to be better than yours and maybe five hands went up. there is a feeling of concern out there and if we could tap into that, i think we would have a chance of doing a paradigm shift that senator crapo is talking about. but right now, i think the politics of this thing everybody trying to figure out how they're going to one up the other one, we are not going to get anything done and i voted against a compromise, said the speech was we were going to kick the can

down the road. we need a crisis to get people's attention, but i do believe there is a chance and that is the challenge of this group. are we going to take this over the mountain or wait until after the next election? >> congressman, i want to skip the line and go to mr. ravitch's naim whose name i remember from newspapers when i was growing up. [laughter] don't mean that in a bad way, i mean that in a good way. >> thanks very much. tell us about what was brought up. it sounds like there is a point to be made. bring it to the end, call their bluff. let the cards fall where they may. >> was the implication of what you said but it worked in new york, didn't it? >> it wasn't intentional. the banks decided they would no longer underwrite the notes so it was the market that forced

the solution and the dissolution was not comparable to the federal situation, but we borrowed money for transition purposes, which is not irrelevant to the kind of program that the senators were talking about. number two, the state enacted a moratorium on the payment of the interest city debt which ultimately was held unconstitutional by the highest court of the state, and the lesson and that is that the ultimate threat is in the levels of taxation as far greater in my judgment than flat of the immediate impact of default. but i would like very much to comment on what david brooks said because i agree with him to a large degree, but part of their reason for it is local and state government has far more interface with the citizens of this country, and it is states

that are responsible under the constitution's system to provide services, responsible for the infrastructure, responsible for public education and for the administration of the social services no matter what percentage of those are ultimately observed in the federal budget. but the citizens of this country look to the state and local government as the provider of services and to whatever extent they don't feel the pinch and they hold local politicians responsible, and there's a fundamental disconnect in my judgment between the congress and the united states and state governments, very few members of congress whose election or reelection as dependent on the fiscal well-being of the state and a similar disconnect strangely enough excess between states and local governments. and therefore, i don't think

true analysis of the problem, and i believe the federal deficit problem has to be solved and i agree with senator warner and those who said it better to be done before the election of 2012. but i think to do it without a full understanding of the implications to state and local government because to the -- to whatever degree you want to cut federal discretionary spending, and i think it was who told me $650 billion of the federal budget are passed through state and local governments, and in many ways they got the most vulnerable part of the federal budget to cut and therefore those cuts that are passed to the state and local governments are going to result in higher local taxes, and in the cuts in services and infrastructure spending which is already occurring to a very dramatic degree and practically every state of this country, and i think those consequences have to

be measured. there is also a 3 trillion-dollar tax exempt market out there which people have said it's not in jeopardy and i agree with that, but i agreed only to the extent to states can't afford to lose access to the market because it's the only way of producing but nobody is tracking the extent to which that debt is being incurred in a way that is not enforceable by the debt holder, - and how your percentage of that debt is what is subject to the appropriations debt, and as teachers get fired and public service employees get terminated and services get reduced, the politics and local level are going to change in the far more dramatic level than they are in a federal level. estimate from the "washington post." >> i understand these guys -- >> i'm really sorry the senators are gone because i wanted to

join the chorus of heaping praise on them for doing a large work and actually i am tempted to say the president's work as well. [laughter] as long as i am in the heating praise i have a right to keep some praise on senator simpson. we talked about a galvanizing moment. i think that was your phrase. we had what looked as if it was the possibility of who the galvanizing moment of the possible beginning of something with all the excitement hour of the release of the simpson planned that i thought was very disappointing that some version of that in some version of the work that the gang of the 5.5% or whatever it was was not taken up by the administration build on either right after the plan came out or in the state of the union or in the budget, and i think that there are probably three strands of explaining why that hasn't happened that i'd like to bring together here and

i did not think after david's column this morning i could out- pessimist him but there are three factors getting in the way, and i do want to say my ambivalence about the use of the debt ceiling because we do need guns at the head to focus the mind. i heard senator warner talk about the debt ceiling as a sort of blazing saddles moment of the republicans threatening to shoot themselves in the head if they don't get what they want. and that's true, but washington only works by crisis, and so i would like to see the debt ceiling used as a way to at least achieved something. but if the three strands i think we talked about, senator warner talked about how it's un-american the british are doing a better job than we are achieving change, but i think that it's quintessentially american because we have a government is deliberately structured not to be particularly effective, which

makes david happier than it makes me. and so, we have both the problem of 60 votes in the senate to get anything done which actually you could imagine the senator achieving a solution there and coddling together the majority, and then you have the problem of an entirely completely unprecedented poltergeist house which is hard to see absent a political groundswell to get them to be at least cause i reasonable and heart to see how a deal would pass the senate and passed the house which gets me to my second strand which is after political structure, ideological, when we have got the norquist republican party, and as frustrated as i am with democrats who hold about not touching entitlements, i think there is much more of a

willingness to acknowledge some need to do something with entitlements at some point and among the majority or a reasonable plurality of the democratic party and there is in the acknowledgment of at least publicly, and i'm looking at you should talk about the need for new revenue on the part of the republicans. which gets to the third point, which is knowledge. i think that there is an understanding among the public that we cannot keep operating with the deficit and piling on debt but no one has been willing in either party to come to them and explain what exactly is going to take to achieve that. and so, they are with sphery, they are just not with the practice, and that public knowledge, which is part of what the committee for the responsible federal budget is trying to achieve is going to be

essential. >> i think it would take sustained intense presidential level explanations repeated, and i think voters are not dumb, they understand the concept of a household budget, but they are absolutely convinced right now that you can get the budget in balance without touching medicare and social security. also you that you can get the budget in balance without raising taxes,. and when they've got politicians coming to them saying it is that just will spending to 18% of gdp, and we are going to either not raise your taxes or cut your taxes with a substantial amount,

it is no surprise or blemish on them that they are completely and tire week befuddled about what it really takes. >> i don't know exactly where you want to go with this, but nobody is turning to the american people have asked for more services not mistaken. that's why they get more services and say great, you got to pay for it. but we keep going things on and saying we can do this for nothing. >> i'd rather not respond to that because something completely different. [laughter] david talked about -- this is what david says, there's so much democracy as we just heard. i think that there is actually too little accountability. one of the reasons the british can do what they are doing and we can't is it's very clear there's only one party in charge here it's a very hard to figure

out whom to to blame and that is what i want to talk about. i want to shift this entire discussion. i think the debt is important, the debt ceiling is important and balancing the budget, but what is the end of economic policy. what are we trying to do. what we are trying to do is what senator voinovich was talking about, we are trying to make a better life for our children just as our parents made a better life for us. what we are trying to do is achieve prosperity. that is the end of economic policy. people were part to support their families can make a good living it can build a golf that to me any way so why you get to prosperity is through economic growth and there's many ways to get to economic growth, and

certainly an onerous debt and high interest rates and all the rest and to much spending that's a drag on economic growth there's many other ways to get economic growth and now and actually having dinner with grover norquist tonight. >> the people who sincerely believe, who actually sincerely believe the tax policy that encourages growth would actually have reduced the deficit, reduce the debt and produce prosperity. they are differences of opinion. i would like to refocus the and get it towards growth which doesn't mean cut spending which is one of the best ways to produce growth there's other ways and one of them is a more sensible tax policy and another we is a more sensible immigration policy and another is better education is more investment by the government a

net basic research. there's better free trade, there's many ways to do it. but ultimately, the answer i believe in the way is growth. chairman bernanke said we can reasonably expect to grow our way out of our current problem. i have to say, i like the chairman quite a bit, but i think that he's wrong. that is the only way we are going to get out of a recurrent problem. but larry lindsey said works the opposite way. we aren't going to -- right now the congressional budget office projects to .5% growth going forward. since world war ii. that's terrible. it is not going to produce a better life for our children. what's going to produce a better life for a ritual for ennis 2% growth, and as leary shows what happens, if you don't grow at what is projected, if you grow better than was projected you do

with what better. as of this is a kind of aspirational its optimistic but by the weekend do it if we shift the conversation towards growth and away from what is battering us down and make us feel pretty bad that we are just terrible people. i think we can do it. >> [inaudible] >> that optimistic statement is the most discouraging thing i have heard all day. [laughter] not that i disagree with the direction and the effect of anything the ambassador said, not that i disagree with the idea that growth is very important, but growth is generated by the expansion of the labor force which is projected to grow very slowly, and improvement in human capital which involves education and training, which occurs only very

gradually coming and we know where our output is in terms of elementary and secondary education and even higher education. innovation, which we do a pretty good job of, although once we create the vice made in china or somewhere else and investment, which we've been doing a bad job of because we have a low savings rate and here we have a big deficit to pay down the debt that we had or reduce the growth of the debt. so, while i agree with a prescription, if we did it we might see a couple tenths of a percentage point added to our underlying 2.5% growth rate,

seven, eight, 90 years from now. so instead is the solution to the problem we have no solution. we can't be pawlenty and say let's go 5%. brazil did it without asking how did brazil do it. there are the millions of peasant farmers coming to the city and augmenting our labor supply. where is the foreign capital pouring in? rear is the new oil discovery and the other things that have driven the brazillian growth and while we have so much regulation, it pales to what brazil had. so the consequences just aren't the same. we can't compare china, brazil, vietnam's growth to that of a mature, high level economy like a verdone with a very low labor

force. we have to bite the bullet, and i think the american people are totally disengaged in this. but while simpson was an electric moment for those in the beach community, yet i'm sure if he went beyond the beltway and said, you know, what do you remember about this? it would be senator simpson's kunar and some of his jokes. it won't be the substance or any agreement on the substance. i think there is really no substitute for either a crisis or leadership like we've never seen before. and by leadership, i mean presidential involvement. the president getting on television and saying here's the nature of the problem we face. let's not point fingers and

plame who this person or that group. these are the risks ahead of us. these are the consequences if we fail of your children and grandchildren and the future of america that of course the first reaction were he to do that now is what is your plan, and he has been reluctant to have a plan and maybe he's waiting for the debate to jell a little more, and hopefully at that point leap out. if he does and this occurs between now and august 2nd line with a very i don't think that there is a pro in the world but the legislative language could be written. first we need a budget resolution that reconciliation then would go to the committee's then to the floor and there would be a conference committee. we are in a glacial pace on

capitol hill when they figure out what speed. this would take well into the fall to do, so we would have to have a temporary increase, actually not temporary, a permanent raise for a short period of time. the last thing you want is a temporary increase when you increase the debt ceiling then it would fall back at the end of a period because the wall street would get nervous about that. because we would have to pay off debt. and then hope that the trust that exists will last through this period, through october, when a package could be put on the floor and voted on. >> about 15 minutes until gene sperling if not before then

after. >> i would like to tackle the issue about the public engagement. there's never been a time in our history when you operate on what i call that take away side of the budget which is a tax increase and spending cuts you have to engage to balance the budget but that has been popular. no politician in office has been off what they are going to take away from people. i think that it is a mistake to frame that part of the debate as how we are going to make this popular with the public. basically there's something we have to do we have to do it because it is economically necessary. so then the question is how do you refrain the debate so you can minimize these political losses and not capture a great game and there's several ways you do it. senator simpson, you may remember when i testified before the commission - told look, if you are going to do anything the press is going to have the same headline as soon as you identify the losers, said something big. you may as well go for something big and that is what you decided

to do on the tax expenditures. that's one way. another trick is of course you have to make the pain of not doing something greater than the pain of doing something. so yes, the pain of enacting the deficit reduction is going to hurt, but you have to do it in the way such as when the market's collapse you do it in a way that a politician says but i don't act and in worse shape, i suffer even worse, so it doesn't mean it's popular, it's just worse. then the other thing i do see the missing because the lack of presidential leadership is there are ways of refraining the numbers in the debate so you reach all the stories, for instance, you start reporting on deficits something like taxes of future generations you don't like things that spending increases and tax cuts act like they are free money, money that grows on trees so we only show tables and distributions the end up saying if i give the money away and giving it as opposed to saying to somebody always pays for it. i think there are ways of

refraining the debate so that actually you minimize the political losses, but i really discourage people from trying to think somehow or another we are going to make this popular with the public. it's great to be more popular than the alternatives we are facing economically. >> thank you. my good friend larry lindsey has asked for -- >> thanks. my good friend -- i wasn't going to say this but she provoked me into revealing a truth that no one wants to admit. republicans already have gauged on taxes and it's the simpson baseline. a baseline is maybe what is actually happening. what the baseline is in the simpson budget includes a 700 billion-dollar tax increase already. now republicans wouldn't because they are moving to basically enact the tax cuts, tax increases on the rich and they call that the new baseline. not reality. so, when you say 3-won the one has already been given by the

republicans. the zero option is actually the 321 deal and the problem is that the republicans tried to sneak past grover and get that done. it's not going to work. republicans and democrats are given nothing when it comes to the three. the republicans are given one. >> do you support the one? >> i think revenues are essentials. i do. and i think that there is ways of doing it that aren't going to grow. i think most republicans will. what will happen though, is again, no senate budget resolution this year, no house or senate budget resolution last year. a presidential consultant who did produce a budget this year, its president and 47 democrats who in 2006 voted against raising the debt ceiling. you know, it's pretty hard after a while to say that somebody out there is credible that you're negotiating with and i think that is the problem.

the fact is the republicans have already given on the taxes on the baseline. >> can i respond to that and take ten seconds? three's republicans caved on taxes and as you say. i wouldn't call it caved, three republican senators, three republican house members disagreed and didn't vote, so why don't see the king, and both of the senate minority leader and the speaker of the house said taxes are absolutely positively no way ever on the table. so, i don't see the caving. >> if i could interrupt that's not true. paul ryan said he voted against the bill because it didn't include health care spending cuts. they are careful not to say they didn't -- they were against -- >> he said right here with the package is. i thought that was relatively open-minded. >> and there's no alternative package.

>> to say that republicans as -- i admire congressman ryan and i take your point that's not the reason they voted against it but they also didn't vote for it and treat republican senators do not constitute. >> about the public not caring on almost every time and when we tend to act on these things is when we can find a bipartisan leader consensus and they're remains generally true we had the t.a.r.p. vote to the second time or not come and get burned enough politicians. we had that though partly because of the coverage of bob dennett and we know what happened to bob benet and the votes for t.a.r.p. were critical elements of that. that means finding a bipartisan

leaders consensus is tougher now in part because i've been in this town since before door bar mitzvah, steve. [laughter] and i would say --. i've never seen politics this dysfunctional. there are plenty dysfunctional when we couldn't get the votes for t.a.r.p. the first time they were much more functioning it now than they are now. and we do have a problem in the public which is the are engaged whenever you talk about doing anything to social security or medicare. and when it comes to understanding what is in the budget when you have a public that believes 25% of the budget is foreign aid and we should cut to 10%, i tell my friends in the foreign aid community you should pop up and say we will go further, we will cut five or 10%. after colonel, i want to get back to -- its 1%. yeah. now, yeah, 0.7%.

you know, we talked with great praise of the gang of five or six, and i get that as well, but we did have a bipartisan plan out there. i will give great credit. i don't want al simpson's hid to grow even more. he's already too tall. i would point out for the record that i appointed him or picked him to co-chair the commission and said the table years before that. but the fact is those house republicans had voted for that commission plan, it would have been an action forcing mechanism we would have had a plan like the gang of six up for discussion so the failure to do so, whether it was because of taxes or health care spending or not was an enormous disappointment to me. it equaled by the disappointment of the president not standing up to the state of the union message saying we have a good plan, let's put it in the legislative language and act on it and we but have had at least an opportunity to get people on

the record. now it's clear to me what we have and it's been four months is the ross perot moment by barack obama. that's going on television with handmade charts and explaining what the problem is and what is in the budget. and educating the public and then taking the plan and creating some movement towards action. let me finally say it is absolutely true we have issues of trust with of the two parties the affordable care act was put on the table what we had was a year of relentless discussions of it as. and a plan that with its exchanges with must have the socialism.

and we have exchanges that paul ryan ryan said are affordable to the impact. we have others careened out of control -- she did say that. >> it's an individual choice in the rhine and budget and doesn't federally regulated. it's federally regulated. estimate let me bring in my -- a few words of senate tea here? >> thanks. i just want to take a moment to pull together a bunch of comments that we have heard, and i've heard things paul ryan has an important point we have to get things that are specific on the table coming at one of the more encouraging things is that that has happened with more and more regularity. we now have a multitude of plans out there getting more specific and the word we heard from the senator about bipartisanship obviously is critically important, and i think all of

this was a game changer when the fiscal commission came out with its products and i think the work in the fiscal commission and the gang of six is the model for how we move forward. so the problem that i see right now is that the clock is ticking and we will hear this shortly from jean who just walked in the the focus shifted from the large comprehensive multiyear budget plan what we do about the debt ceiling and i think there's a lot of risks. we will lift the debt ceiling before august 2nd and i voted we but lifted after and i might as well because i can't figure out how to make money if we have a fiscal crisis whether we would have won, but we are not going to have the big comprehensive plan as a part of the debt ceiling in all likelihood. what we are probably going to have is something that deals with the low hanging fruit as much as it as we can get done and will be a reasonably large headline number, 2 trillion the was, i don't know, we can do a lot of baseline. we already talked about, and some kind of budget mechanism

perhaps something like pearson put on the debt targeting charter and that's all good. nobody would pay a trillion dollars that's important. but there's too big risks there and one is, and i think it's great we have a lot of folks from the financial markets but more and more as i am talking to people on the markets say it's not the headline number that is going to matter to be the world matter whether the entitlements are part of this because i will show whether there is the political will to do something real. and the second point is if we go to the election of having resolved any of this, you can call it the opportunity for the mandates on how to go forward, but it is going to be an opportunity for all these tough issues to become really, really toxic. and so i think in all likelihood on the debt ceiling is going to be very hard to get fundamental entitlement reforms for the real tax reforms as part of the deal. so i think we have a big risk that seems to be much harder if we move this after the election. one quick point on economic growth because i'm glad chairman bernanke brought it up and glassman brought up.

there's compromise on how you look at fiscal consolidation beyond the numbers do add up. we know we have to say trillions of dollars over a decade and you want to do it in a way that is smart for the economy and both sides right and left have important points here. one on the left, you don't want to decimate the part of the budget that is public investment. you want to find a way to shift from the budget and on the right of course during tax reform in a way that is smart rather than stupid will be conducive to economic growth but what i would warn against that concerns me is if we start building it into the consumption, we should let annie growth reva icing on the cake and have that be the extra bonus we have for fiscal consolidation. so i think the big challenge going forward is one, how are we going to do this and get this done and number two, we should talk about the fiscal consolidation but not as a way that replaces the need to make it tougher choices. ..

we have clients in my own firm that go from one end of the political spectrum pension funds come a union pension funds to the other and very well individuals that are very conservative. and so, to be here and to have private sector involvement in this debate is critical. i also think it's a consequence that there's not more of this year because of the political rhetoric we're now hearing. i just want to underscore that

point i've heard, former cover mishkin, which is key to this issue is so. >> just a quick word of the importance of growth and how that change is. >> one of the most interesting things is what we found out in the 1990s and it was not anywhere near what their situation is today is as the deficit is smaller we get more dirt investment almost to the extreme in the 1990s with technical. i certainly believe we can think thoughtfully. i agree very much with my comments about how we structure deficit reduction to encourage docents bob talked about earlier down the road because reforming tax policy is critical and a lot

of us, larry and i would agree on a lot of things we might not agree on otherwise on tax refunds in terms of encouraging growth. the american public could agree on not giving her a framework. same thing with the structure of spending cuts. i think that is where our hearts are decades beyond these ideological and political debates into the economics and heart of the matter and that is building a more sustainable long-term. >> one-word answer here. even the policies, what is the potential growth quakes >> given her policies? my current intention is about the same as larry's two and a half. i speak we could get it up to 3%. >> great segue into gene sperling. >> thank you. i am sorry he could not be here at my initial time, but we were i don't know if it's six or seven of the fighting group. it won't surprise you to know that i'm not going to reveal too

much or negotiate here. but i will say the following. it is a very serious process. there was a real seriousness and purpose in the room. everybody at the table takes it very seriously comes very well prepared and goes line by line through the details. and so, the talks are -- they are tough, but they are positive and progress continues to be made. let me just make a few general points. number one, we should be engaged in this process and seeking a bipartisan down payment on deficit reduction regardless of whether or not there was a debt limit issue. it is important for us to show that -- the american public and

broader markets that despite our deep divisions in washington, we are capable of coming together to make progress on getting our fiscal house in order and showing we can live within their means. i think that would be a very positive development. the progress in the 90s was not made all in one swoop. it was the combination of the 1990 budget agreement, 93 budget agreement, 1997 and a commitment to save surplus for social security. so, make a mysterious down payment, making important progress matters and we send a very important signal. so we should be doing this regardless of whether or not there is a debt limit issue. that said, nobody should use the

default of the united states as a threat or attack for their wretched agenda no matter how admirable or noteworthy that agenda is. no one should ever use the first default of the united states, with our legacy starting with alexander hamilton as acceptable foreign of a political or negotiating tact to it. i can come in a matter how were the fair and objective is. i can't come president -- our strategy this year was to get to the first initial budget and as soon as i that was over to come forward and get a bipartisan negotiation going forward. getting the first part and took much longer than we would have liked for many people would have liked.

but that was done on a friday night and on the next wednesday, the president put forward a 12 year plan to get to $4 trillion in deficit reduction. that plan was very detailed in some aspects such as the deficit cap, what we were doing on health care spending in the out years through our mechanism. in other places which is made clear we willing to hit important targets in medicare and medicaid and other mandatory is. and i think it sends an important signal that we were willing to look at all the major budget categories as part of a comprehensive deficit reduction plan. we did say and we do believe social security should be dealt with in its own right and it should not be looked at as a means for dealing with the five

or 10 year deficit problem. but the president, as he always has encouraged a serious bipartisan negotiation and compromise on continuing this is a rocksolid and solvent benefits for future generations as a has-been for past generations. as a think you are just seeing here, we are not -- we are not apologetic about the fact that for us a deficit reduction plan is not a means and an end, but is a component of a strategy to grow our economy and a way consistent with values, which is to have a growing middle-class in which success in our economy is not based on the accident of your birth, but your ability to client and the ability of a multiethnic society chubais and be part of a growing underclass without pushing anyone out.

that is the ultimate goal and we believe a strong deficit reduction is a critical component of that strategy. but it is also important to ensure that we are investing in the future and it's also critical we do so in a way consistent with encouraging a strong recovery at this point. those are parts of a strategy that not only can go together, and they should go together. let me make one point on the investment partner. i have heard for over 20, 25 years the discussion by so many people around this table as to why we as a country one is to have a strategy to deal with the baby boomer retirement. and truthfully, we were in a position when i left my last year the clinton administration where we were on track to deal with the retirement of the baby boomer generation in a way that was not going to pass on

significant debt to the next generation. i won't go into how we lost her way, but i will say the following. part of the goal and purpose of that was to ensure that the strains of an older part aging society did not prevent us from investing in our children, and research, innovation and the things that have helped make our country great. so the notion that is part of the strategy, it fits well. to cut those parts of domestic spending that are fundamentally about investing the productivity and innovation and research of the future to me counters much of the fundamental goal and has been able to get our fiscal house in order. part of the goal was to ensure

we did not start the investment in our children and education can i innovation. so to say that it doesn't matter or that it's actually a positive thing to be cutting those parts of our budget to levels that we have never seen on record for not since the 40s or 30s should not be part of our strategy. and in fact, one of the things that we need is for people to make clear that not all spending is the same and to make the tough choices about those things that are critical to giving people opportunities to commit ensuring the children's chances in life are not over determined by the action of their birth and make sure we are still investing in basic research and innovation that has helped us lead the world for generations to come. the issue -- i will say that there's no question that one of

the most difficult aspects right now is whether or not when we are looking a comprehensive deficit reduction, revenues can even be at peace on the table. i want to point out that that is the norm for a serious bipartisan budget agreement. it was what happened in 1982, 1983 and social security, 1986, even the tax reform its revenue niche overpays taxes on them, lower than others. 1990, 1993. in 1997, even though they were not a revenues, there is an agreement to continue revenues through 1997. prime minister cameron has in his serious, some feel too far it budgets in the u.k. includes a dollar of revenues for every $2 of spending cut budgets in the u.k. includes the taller of revenues for every $2 of spending cut budgets in the u.k. includes the taller of revenues for every $2 of spending cut

budgets in the u.k. includes the taller of revenues for every $2 of spending cut of revenue for interest savings. the reason this is important is for three reasons. one, it is hard for the members to work with our revenues. i think some of the most unfortunate parts of the house budget agreement, the house budget -- the house budget plan were driven by the fact that without revenues they were forced to cut far too harshly in some areas, particularly affect change the least fortunate and most vulnerable. secondly -- beyond the numbers not working out, for those of us who have been involved in major deficit reduction plans, we know the following. it is never popular. it succeeds because it is kind of equally painful for everyone in the way people think is fair. that sense of shared sacrifice

is how those who vote for a budget agreements get the moral authority to ask for sacrifice. we are a democratic administration and in our framework we have put over $100 billion in medicaid savings. we hope that our flexibility that will not impact people too harsh. the fact is we are essentially asked in everyone to be part of the sacrifice. one loses their authority to arrest the sacrifice of everyone at the same time those who are being asked to take a pinch or to sacrifice in the short term for a long-term benefits feel that their sacrifice could've easily been avoided if it had not been for tax relief to the most fortunate. so it's not just about the numbers working now. it is being able to tell everyone that everyone has to sacrifice.

if again you can success that all of your sacrifice would've been unnecessary had it not been for extending tax relief are the most fortunate, it makes the tough and difficult choices that elected officials have to ask of their current situations were difficult to do. finally, we need the sense of shared medical sacrifice, the sense that when people go back to their roots that support them, to the people on their side and explain why they did some very difficult things, they can say it was mutual, that everybody held hands and do difficult things together that they could not have done alone. the people compromised on long-standing positions not because they wanted to, but because it was the only way you could get divided government to work together to do something larger and better for the american people. it is very difficult to do that is a huge opponent such as

revenue is completely taken off the table. so my last point and then i'll step is just to say whether we were the south, our sense of shared sacrifice should not be that if the toughest races become too difficult we do fault to ask of those who are most unfortunate, those with the least economic and political power to take the overwhelming the overwhelming the overwhelming. and i asked that those -- and i suggest that it should be except to pull in our dialogue for those of us to suggest how to tear any of the numbers can pass millions of people their health care without being accused of being political. if one looks at the medicaid savings being asked, 770 billion

in the house republican plan, 35% savings in 2021 off the projection, 31, 5%. by 2029, nearly half. two thirds of the savings of those funds go to people in nursing homes or families with serious disabilities. if you want to -- that must mean it shows you can have savings without significant unless you were to take it off from the other third reaches 40 million or more. to suggest that is to just suggest to numbers on the map, and the tyranny of the map below for another outcome. to raise that issue should not

be off the table were considered demagogue. there must be a way that we can have a discussion about what the impact on people is. i have not used any freezes. i have not used any political jargon. i am just suggesting that the numbers in that particular area worries me deeply from a policy. thank you. >> thank you, gene. just before you came in at the suggestion to three to one ratio, republicans have given various the exploration that democrats have given. respond to that. >> i'm sorry, what is the one that given? [inaudible] >> i have not gotten that e-mail yet. [laughter] i have not gotten that twitter. i have not gotten a phone call. but that would be --

[inaudible] [inaudible] >> -- disadvantage, poor, veterans. it's all been there. there we had the same point. i like cheney. he's a great guy. if this goes back to that, we'll never make anything. read the report. i know one thing and not share with you. >> senator, i did not, and one-word. and if i had, i would've done so so in a complementary way that yours represented the type of balance plan but you agreed with all the details are not, that we should be aspiring to. >> i sat here and i'm fascinated. everything you spoken about the disadvantage, vulnerable to

people on social security we particularly direct our remarks to that. when the commission report was given for the five republicans, five democrats and one independent, nothing came from the president. nothing. and i'm not talking about specifics or anything else. you're a great guy, but let me tell you, that goes right back to the same stuff for the republicans to come in and saved it a go again. if you torture statistics fun enough, eventually they'll confess. [laughter] and if you're going into that game, three to one or four to one or 10 to one, you'll never get there.

but we had not a single witness that said we would get out of this with the then double gross for two decades. not one single witness. we sat there for a year. i was here for 18 years and i couldn't believe what we have now in the situation of the cleverest possible ways to stick it to each other. >> emulator air? >> it doesn't matter for those. they can't avoid commission report. you can't avoid it. >> well, senator, in all fairness, i didn't mention medicare in my remarks. i said we needed to come

together. i said what i thought conditions were for bipartisan compromise, that we'll had to be able to move fast. i suggested why the position that you have not taken, that you could not have any of revenues was harmful to both the shared sacrifice and the numbers adding up a little shared sacrifice that he would need to get a more significant deficit reduction bill. ali mentioned was one program. it is not a program. cannot mention it because there is political advantage to it. i mention it because it's the reason i came into public service was a confused mess privileges to defend those who have less privilege. these are the poor children in our country. all i said -- always said, senator. i didn't say anything about your

plan. ali said was on that plan but i hoped we didn't go there. [inaudible] >> senator -- >> this is completely unfair to be put in a position of defending himself in the flag. this is one of the problems that budget cycle who want to have these kinds of discussions. someone actually says here's what might be going on, it went well, you're not saying it the right way. jean is the only one in this room who was in the meetings. as someone of his term has been involved in negotiating this kind of deals currently in government. and i think it's unfair. to say you disagree with them. >> i just don't know. >> senator since then, going to go at jean who was kind enough to join us to finish his remarks unencrypted could post it it

that whenever a with closing comments of those who would like to make. >> terrific at a capable time in weekend -- i'm sorry that my arrival changed that, but i did not use any of those phrases and i do think we should be able to have those discussions about what the impact is. i believe very much in bipartisanship. i believe very much we have to compromise agreed in budget negotiations with, you know, people who i disagree with, like senator kyl and congressman eric cantor, that they come to the table every day with a sense of seriousness, very well prepared that we are trained very, very hard to find enough agreement so we can make progress. again, i think that is very important. we do have disagreements. i don't think expressing those in a civil way were talking

about the potential impact, again, i mentioned one aspect that i think i mentioned because it doesn't get much political coverage and it's not considered a political issue, but something i'm worried about. and i compliment the fence and plan in that i think it did a very good job of trying to ensure that whether you agree with all the aspects are not there was shared sacrifice and there was not a sense of putting a disproportionate amount on those of low income. i want to say again, i believe we as a country people have to be willing to move off their dime in past positions is included. but you have to do so together in a has to be a sense of mutual compromise and mutual shared

sacrifice and that was the main point i was trying to bring. we will have differences and i think if they could be expressed in a civil way that's all the better. but i am not going to forego the ability to say where i'm deeply can turned when things are going to hurt those that i think are less fortunate nor insane not to live mean to impugn the motives or the intent of anybody who might be a different position. i think, for example, going back to my initial point. things in the house republican budget that were there because they had no choice because they have hated no revenues. they were forced by the tyrannies of the numbers to go deeper in areas that make us as many them would referred. but i stay with my caveat, which

apparently got me in trouble here, which is not that we should avoid pressure on revenues or medicare or anything else, but again as we do that we do not put a disproportionately negative impact on those who have the least economic and political power. >> i thought i had a press arguing

it it is not because people even understand what the millionaire's tax status. a shared sacrifice. somehow people in this country think that some people got off the hook easier than others during his whole life christ as they are having.

shared sacrifice to support change. one of the things i want to say is i had only a few we didn't have major corporations were fixing the tax system and lowering rates to pay a dime in shared sacrifice. i think that's right. it's not right for the future. we should lower the rate, get rid of the exclusion. all of a sudden peter orszag is looking a lot smarter basis lets all the tax cuts expire because democrats have to think that we really want to take away people's programs piece by piece, but by little, cut, cut or their bigger things we could do like that in all the tax cuts expire that may just be an easy way to do with some of these things by providing more shared sacrifice in a much broader way? to less points, one is the democrats no health care pram. i don't like iran's plan. i don't think it works for the market, but it works radically.

i'm going to take the beard and are simply which will take me for saying that when he testified in the fiscal commission, talk about defective in france and france pays 6% less in the united states as did every other major industrial nations pay 6% less gdp. we would solve a lot of problems to 6% gdp. we can't have the discussion that i'll pay her single-payer or know some major corporation listed than any other country partners but somehow is off the table to a discussion of how to save 6% gdp. the last thing i say is jean stirling should be our master. the choice has to be better than the alternatives. it is not good choices for his good choices. we saw that in the tax code. it was better to have the bush tax cuts for everyone for the rich continue because we also got something in return we have to set up a situation where what we're doing et